I. Field of the Invention
The present invention is related to credit card products and to systems and methods for offering and providing such products. More particularly, the invention relates to systems and methods that minimize risk to credit card issuers and increase the level of response to offers for secured credit card products.
II. Background and Material Information
Credit card products have become so universally well known and ubiquitous that they have fundamentally changed the manner in which financial transactions and dealings are viewed and conducted in society today. Credit card products are most commonly represented by plastic card-like members that are offered and provided to customers through credit card issuers (such as banks and other financial institutions). With a credit card, an authorized customer or cardholder is capable of purchasing services and/or merchandise without an immediate, direct exchange of cash. With each purchase, the cardholder incurs debt which the cardholder may thereafter pay upon receipt of a monthly or otherwise periodic statement. In most cases, the cardholder will have the option to either fully pay the outstanding balance or, as a matter of necessity or choice, defer at least a portion or the balance for later payment with accompanying interest or finance charges for the period during which payment of the outstanding debt is deferred.
The spending power of a credit card (i.e., the total amount of funds available to the cardholder at any particular time for making purchases) is typically limited to a particular amount predetermined by the issuer of the card. This amount is commonly referred to as the "credit limit" of the credit card. The size of the issuer-imposed credit limit is generally based on a number of non-exclusive factors, the most important of which are often the cardholder's earning capacity and the cardholder's credit history. When purchases are made or debts incurred with the credit card, the available portion of the credit limit is reduced by the purchase or debt amounts. In addition, interest and/or finance charges are also subtracted from the available portion of the credit limit on a periodic basis. The total debits on a credit card are referred to as the "outstanding balance", while the remaining or available balance of the credit limit is typically called the "available balance" and reflects the dynamically adjusted current spending power of the credit card. The cardholder may increase the available balance up to the credit limit, by paying to the issuer (or its representative) the entire outstanding balance or a fractional portion thereof.
Credit cards are typically structured according to one of two general varieties: unsecured or secured. Of these two varieties, unsecured credit cards are perhaps the most common type of credit card product. Unsecured credit cards are aimed at customers with excellent or good credit history, and are distinct from secured credit cards in that they do not require any type of security deposit from the cardholder. The issuer of an unsecured credit card may offer potential customers a particular unsecured credit card by disclosing the terms and conditions of the credit card product (e.g., annual fees, interest rate(s) and finance charges, etc.) and the credit limit of the credit card that may reach a stated maximum upon qualification. When a credit card application is returned by a customer, the amount of the credit limit is generally determined by the issuer based on various factors, such as the customer's credit history and earning capacity.
Secured credit cards are an alternative to unsecured credit cards and are designed for customers with poor or bad credit history. Secured credit cards differ from unsecured credit cards in that they require a security deposit from the customer before a credit card account can be established. There are generally two types of secured credit card products: ratio products and fixed line products. Ratio products are credit cards that are offered to potential customers with a variable credit limit that is based on an indicated ratio or multiple of a security deposit to be provided by the customer. In response to an offer from the credit card issuer, the customer may choose a security deposit ranging between a stated minimum and maximum amount to obtain a desired credit limit. In contrast, fixed line products are secured credit cards that are offered to potential customers with a fixed credit limit and a predetermined, security deposit amount. The offer for a fixed line product can indicate both the required security deposit amount and the fixed credit limit. Since the issuer of a fixed line product does not vary the credit limit for potential customers, the customer can only receive the indicated credit limit in exchange for providing the security deposit.
Although secured credit cards have enabled credit card issuers to provide credit card products to individuals with poor credit, these types of credit card products suffer from several drawbacks. For example, the main disadvantage of ratio products is that certain customers may seek the maximum credit limit by providing a larger security deposit, but still default on their payments. As a result, a credit card issuer may be exposed to unsatisfactory levels of financial risk. While such risk can be minimized by providing fixed line products, these types of secured credit card products typically do not receive a good level of response, since the fixed credit limit is normally lower and/or determined based on the entire group of potential customers that receive the offers from the issuer. This results in a fixed credit limit being offered to certain individuals that could potentially qualify for a higher credit limit.
In view of the foregoing, there is presently a need for an improved system and method for offering and providing secured credit card products. For example, a need exists for a secured credit card product that minimizes the risk to credit card issuers while attracting a larger number of potential customers having a poor or bad credit history. There is also a need for an improved system and method for offering secured credit cards that provides a level of response that is comparable to that of unsecured credit cards.